Saturday, September 11, 2010

An unnerving thought

With each passing day, it’s getting harder to believe Europe’s banks are in as good shape as their regulators say. That could be a problem for a global economy still struggling to recover from a deep recession.

Well that is the opinion of Mark Whitehouse at the Wall Street Journal. He is flagging up a paper produced for the OECD by Adrian Blundell-Wignall and Patrick Slovik, on the banking stress tests faced by the European Banking Sector.According to the paper,

The banking books contain more than 1.6 trillion euros in EU government bonds, compared to only 336 billion euros on the trading books, for a grand total of more than 1.9 trillion euros. Using the stress tests’ own worst-case scenario, the authors estimate that banks’ total losses would be 165 billion euros, compared to the stress tests’ estimate of only 26 billion euros.

Which is rather a large exposure to EU government debt, 1.9 Trillion Euros. Quite enough to shake a stick at.